Power Lunch - China’s Economy, Retail Rundown and the Shrimp Indicator 6/20/23

Episode Date: June 20, 2023

China’s central bank cuts rates to boost the struggling economy, following visits to the country by Bill Gates and Secretary Antony Blinken.Plus, how retailers are dealing with shrink and frequent returns from online orders.And a hotel CEO gives his view of the economy, based on customers’ seafood choices. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch. Busy Day alongside Kelly Evans. I'm Tyler Matheson. Coming up, President Biden says Secretary of State Anthony Blinken did a hell of a job over in China, but did anything real get accomplished. Meanwhile, China's central bank cuts interest rates as the economy over there continues to sputter. Plus, tomorrow is the first day of summer, the longest day of the year. But worries are already starting about the holiday shopping season. We'll talk about that and several other hot retail topics. with our panel. Tyler, thanks. But before all that, let's get a check on the markets.

NASDAQ almost went positive a moment ago, but is now down 35. The S&P down 18, below 4,400 once again, while the Dow is down more than 200. If you're wondering what's weighing down that index, Nike and Intel are the biggest percentage decliners, while Goldman and Boeing are having the biggest point impact, accounting for about 100 points of those losses you can see here. The biggest decliners on the S&P are actually the solar stocks. Solar Edge and phase both down big, 6 to 8%. More on those names coming up.

And shares of lemonade, the insurance startup, getting hammered today. Morgan Stanley initiating the stock at underweight with a $14 price target. The stock's still trading just below 18, even with today's nearly 10% decline tie. All right, we begin with news out of China this morning. The central bank cutting interest rates as the economy struggles to come out of the COVID era. And it comes after Secretary of State Anthony Blinken meets with President G. Let's go live to Beijing now where it's the middle of the night. But our Eunice Yunnan is standing by.

Hi, Eunice. Hey, Tyler. Well, the central bank policy cuts were widely expected, but they just weren't as aggressive as many people had hoped. The benchmark lending rates for households and businesses was trimmed by 10 basis points. A lot of people were hoping to see the mortgage reference rate dropped by 15 basis points. Now, this comes as Secretary of State Anthony Blinken really sets a stage for, an easing and a reprieve in the U.S.-China tensions.

He had a two-day visit here speaking to Chinese officials, and it was really capped off by a 35-minute one-on-one with President Xi Jinping. The two sides have said that they recognized that there was a need to inject some stability into this relationship. Secretary Lincoln later told journalists that he, that both sides really saw the that this relationship had hit a point of instability. Now, the foreign ministry was quoting President Xi as saying that he was pleased that there was some progress made on some specific issues.

There are not a lot of details on what those specifics are. But what we're seeing now is that this visit really does pave the way for other senior officials to come in what Secretary Blinken had described in a matter of weeks. All right. Thank you very much. Eunice Yunn, reporting live tonight or tomorrow morning from Beijing. Along with the economy, espionage worries in focus still. Reports now say that China and Cuba are planning to establish a joint military training facility on the island, raising concerns that it could lead to Chinese troops and other intelligence operations, just 100 miles off the coast of Florida. Joining us now to talk all things China is Sean Ryan. He is made. He is made.

managing director. With China Market Research Group, he was one of the biggest bulls on China's economy for some 25 years, but it's now become one of the bigger bears since early last year. Sean, welcome. Good to have you here in the U.S. been a while since you've been here. Good to see you, Tai. Yeah, this is my first time in the U.S. in four years. I got locked down because of COVID in China, so it's great to do that. And how long were you locked down? You lived there with your family in Shanghai? So I lived, I was locked down for three full months in Shanghai. We had problems the first two to three weeks. getting access to food.

We weren't able to buy anything. But actually, it wasn't just one lockdown. 40% of my employees were locked down three times. So the second and third times were one and two weeks each. And it's these lockdowns that has caused a lot of depression and a lot of anxiety in China. So right now, the government has estimated about 50% of Shanghaiese are suffering from depression.

And that's what's hitting consumer confidence right now. So if you look, in April, retail sales went up 18.4%. They only went up 12.7% in May. Chinese consumers are cutting back on their spending. So investors need to be cautious whether there's going to be an economic recovery or not. People thought the Chinese economy when the sanctions, when the restrictions were lifted, they thought the Chinese economy would snap back very, very vigorously. It hasn't?

It hasn't. So, I mean, J.P. Morgan and the big bank said that Chinese households are sitting on two trillion U.S. dollars of savings. So they were going to go out and do revenge spending. I predicted that wouldn't happen. And unfortunately, I was right. The reason it didn't happen is Chinese face a lot of salary cuts, unpaid furloughs in 2022, but they're even bigger, more geopolitical issues

that are facing the Chinese consumer. Chinese feel that the United States and the Blinken regime is trying to contain China's economic growth and destabilize the party. You can look at it, KKR, the big private equity giant, just announced yesterday that they're reshuffling their leadership in Asia to de-emphasize China, Sequoia, the big venture capital firm, split their China operations.

And there's a lot of pressure and back room from the Biden regime to American companies not to invest in China right now. So FDI into China only went up 2% in Q1 of this year. Now, what does that mean? It means that SME business confidence in China is low, consumer confidence is low. They feel that we're going to go into a 10-20 year economic stagnation because of the United States. and what the Chinese feel is economic coercion. So the Biden administration has gone to the Dutch. They've gone to the Japanese and said,

you can't sell semiconductors to China anymore. Especially the Dutch extremely high-end semiconductor machinery, let's say, they're worried about. We have seen a number of high-profile American execs go to China. Jamie Diamond, Elon Musk. I believe Tim Cook perhaps was recently there, maybe the head of Starbucks. So they do seem to be trying to make a point

of going there. They're getting a ton of media coverage. Does that mean there's still hope for this kind of whatever we're going to call this relationship where a lot of major companies are still seeing this as a huge part of their future? Yeah, that's a good question, Kelly. There is hope, but you saw the companies that you just mentioned, Starbucks, Tesla. China is their largest or second largest market in the world. And they've only just come into China to take a look around in May and June. So what's happening is a lot. So you think those were recon visits more than they were confidence building this? They want to see, is China normalized? Are there going to be COVID lockdowns again? How is the consumer confidence? Is China a place that they can still invest?

If you look at it, Larry Fink was supposed to go to China in April, the CEO of BlackRock, he didn't go because of pressure from the U.S. So what's happening is I don't think the multinationals are going to come rushing in until maybe 2024. They're going to want to wait and see, 2003, how is the Chinese government, how is geopolitics, let's invest in India, let's invest in Vietnam. Maybe next year they'll come back in. Are businesses playing good cop to the U.S. government's bad cop or tough cop? Because it seems that both parties going into an election year, oh, by the way, want to appear to be tough on China. Yeah, one of the problems is the only thing that Republicans and Democrats alike can seem to agree on is to hate on China.

It's to try to say de-risking from China, maybe decoupling. I think a lot of American businesses right now, Ty, frankly, are nervous about investing in China. They don't want to be caught up in political attacks from D.C. They don't want activists to attack them. You know, I was talking to a big sports apparel company, and they're thinking maybe we should split our China operations off from the rest of the world so that our China operations can just focus on expanding in China, not worry about the Xinjiang, you know, genocide,

and, you know, force labor allegations in Xinjiang with the Uyghurs and just do business. So I think the business community is against what Biden's doing, but they don't want to say anything. They're scared. What's it like in a business like yours or where we've seen more pressure on some of the consultancies and those who are trying to do information gathering in China? The authorities do not seem pleased about this kind of line of work, and we've seen a lot of coercion. And for you operating, you know, being there and being as bearish as you are, you know, what's that going to look like for the next?

next couple of years just in terms of any business operations risk. It's a good question. I think on the consulting side, I think there's been a sensationalism and exaggeration on the crackdown on consulting firms. When you look at what Cat Vision did, they always operated in a gray area. So did the Minsk Group. So they're doing private investigations, which has always been illegal in China. So I'm actually not worried. My business is fine from the Chinese government side. My business, frankly, has been hit hard. I've lost money for three and a half years, not because of the Chinese government, but because American companies, just don't want to invest in China right now.

Fascisting. How do you rate the Blinken visit and meeting with Xi Jinping? You got 35 minutes of FaceTime, which in the grand scheme of things isn't all that much, it doesn't seem to me. But what did it accomplish, if anything? I give Blinken a grade of C. It didn't really accomplish much of anything, Tai. Because at the end of the day, the Chinese and the Chinese state media have been reporting

this ever since the meeting. Lincoln says nice things, but let's see actions, right? The trade war is still serious. There's still economic sanctions. Whenever a Chinese company does well, like Huawei and Telecom, Biden says national security risk. Or when China does well in apps like TikTok, Timur or Shine, the U.S. Congress says security risk.

When China does well in cotton, remember 20% of the world's cotton comes from Xinjiang, all of a sudden the United States says there's genocide and forced labor. So the Chinese feel that no matter what they do, Blink, and Biden are going to try to contain and destabilize China's growth. They see George Kennan containment. Look, I am a red-blooded American. I was born in New Hampshire, loved the United States, but I 100% see containment,

and I 100% see what the Biden administration doing to China's wrong. It's morally wrong. He's oppressing 1.4 billion Chinese simply because they're Chinese. So I would like to see Biden. But let's come back at... Let's not confuse the Chinese people with the Chinese Communist Party who's doing a pretty good job of oppressing its own citizens with some of the surveillance and the things going on there.

And if they didn't want this treatment, perhaps they shouldn't have been doing the corporate espionage that we have an entire documentary about and some of the other moves that people see if they don't want to feed into this idea that there's tensions between these two countries. Yeah, I don't see oppression of the Chinese people. You know, I've been living there for 25 years.

When you see the cameras, I don't see that as big brotherish. I view it as actually trying to save people. I'll give an example. Somebody hit my car the other day. And so I went to the police station and they looked at the cameras and they were able to find out who did it. So actually, most Chinese like the cameras. It creates safe streets. You can walk anywhere at midnight.

I do think that there was definitely over, there was too much implementation of zero COVID last year. Totally agree with that. I didn't like being caged down for three months. They lost their minds. Now, I have to be careful. I still live in Shanghai, so I want to be clear to everybody. I support Xi Jinping and I support the Communist Party. I need to make that clear.

Now, that might say something. Okay, read between the lines. But I don't think most of the Chinese people still support the party. And so when I think Biden is saying to American companies, you can't invest in China, that does hurt the quality of lives for Chinese. And that's why they don't view the blinketed visit as accomplishing anything. They need to see actions, not words. A moment ago when you were talking about how the United States response to various business advances that the Chinese had,

whether it's TikTok or Huawei or whatever, and we then say this and then we say that. Isn't that just playing hardball competitively? I think not if it's based on lies, right? If it's all allegations and you don't have any evidence, right? That's where it becomes the issue. In TikTok's case, there was evidence that they were gathering all of the inputs that a person entered onto their phone,

gathering that data if you had the app installed on your phone as the Wall Street Journal reported. The Wall Street Journal reports a lot of different things that end up not necessarily being true, but that might be going to TikTok. The idea is, is TikTok an arm of the Communist Party of China? That I'm not convinced of. You know, if anyone knows how China works, you can see that Huawei succeeded in spite of the Chinese government, not because of the Chinese government.

So the Chinese government has always had sort of a gray area look or a skeptical look on Chinese tech companies. You see what's happened to Alibaba. So Alibaba had to break up, which was big news that you just talked about, because they got too big. So Huawei has succeeded in spite of the government, not because of it. Sean, great to have you in country. Appreciate the perspective. Thanks very much. Sean Ryan. And speaking of China, CNBC is, as Kelly mentioned, premiering a new documentary,

taking a look at how Chinese spies are targeting corporate America. Amen Javers dives into the shadowy world of espionage to tell the story of a spy from China who attempted to steal GE's jet engine secrets. China's corporate spy war premieres tomorrow night at 10 p.m. Eastern and Pacific on CNBC. Sean will be watching. Sean Wright. We all will. Up next, an alternative gauge of the state of the economy. We'll speak to the CEO of Omni Hotels for insight into what shrimp sales, oh yes, say about business travel and the state of the U.S. consumer. Plus further ahead, an elemental breakdown. Disney facing a box office blunder showing even the house of hits ain't infallible. Details when Power Lunch return. Welcome back to Power Lunch. From GDP to consumer confidence, there's a lot of data trying to tell us

what the economy is doing, but could finding the answer be just as simple as attending a cocktail party? Omni Hotels and Resorts is out with a new measurement of economic health called the shrimp index. They say if you see more raw bars at corporate outings versus those cheese and fruit platters, it's a sign people are ready to spend and the economy is swimming along. For more, let's bring in Peter Strebel. He's chairman of Omni Hotels and Resorts, Peter. We have to thank you for bringing this to us. And please reveal are people in shrimp or fruit and cheese mode these days? people are still in shrimp these days. It's been really great. They can always tell the corporations and how well they're doing for a profitability standpoint. Whenever they have their meetings and events

at our hotels or resorts, when they add shrimp and they add raw bars, they add caviar, and they add great brands of alcohol, that means the economy is really going well. On the opposite coin, when they start cutting things back and not having an appetizer and going with just fruit cheese, we realize, oh, boy, we're up for some rough time. So right now that the corporations are spending, customers are spending, and everybody seems to be forging ahead with travel. No shrimp equals no good. All right. So what is, where is this demand coming from? Is it coming from private personal parties? Is it coming more from corporate events, team building exercises, those kinds of things? It's really coming from both, I would say. The corporate events are

very, very strong. The number one reason why people are having meetings today is they're bringing their staff back together. They've been, during COVID, they've been basically working from home. The whole morale issue of the corporate America kind of went down with everybody not working in an office anymore. And I think now they're really trying to bring people together to meet each other, to learn from each other. So a lot of it has to do with corporations bringing people together. The other thing that's happening as well is also on the social side. People have been, you know, depressed during the COVID. They put off weddings. They had small weddings. Now big is better. People want to get their friends together. People are traveling in packs. So there's much more

entertainment going on on a social perspective as well. How are you coping with inflation? And let me ask it in a specific way. If I were to bring a group in and you would normally say three years ago, you would have said, okay, it's going to be 125 ahead. What would that price be today? Would it be 150? Would it be 175? What? Probably be about 25% to 30% higher than it was free COVID. So inflation has definitely happened. Our cost structures have basically increased. The wages of our associates have really increased from 19. We're about 30% out from wages from 19, now into 2023, which I think is overall a good thing. Working in a hotel is difficult. It's hard work. And I'm actually glad and happy that our associates are benefiting from these higher wages.

All right. Peter, thank you very much. We appreciate it. Peter Strel, we of Omni hotels. Thank you. And as we had to break, folks, a quick power check on the positive side of the S&P. Generac up seven percent. Generac up seven percent today. Barron's writing recently that summer blackout season could boost the stock. A bad news equals good news for those. That company on the negative side, solar edge down 7% the solar group in general. Lower today. More on that next.

Welcome back to Power Lunch, everybody. Bond yields lower today along with stock prices. Rick Santelli, tracking the action for us from Chicago. Hi, Rick. Hi, Tyler. You know, they weren't always lower on the session. As a matter of fact, let's start at the beginning. Housing starts, shall we?

Everybody was impressed. Big number over 1.6 million. So let's do a chart from 2006 to right before COVID hit in February of 2020. Because I want you to see in January of 2020, we're at 1,572,000 starts. You see it on the right. That at the time when it was released was the highest level of start since 2006. Now let's put the rest of the chart. So yes, we pop today, but it is still higher than it was pre-COVID,

and it's higher than it was going back to that 14-year high. Why does that matter? Because maybe this is an anomaly. Many are thinking it's a big turn in housing, but quite possibly it could be a one month off considering where it was pre-COVID and all the issues since. How did that move markets? Well, as I said, yields were higher. Look at twos and tens on one chart. There it is at 8.30 Eastern. Boy, it popped. And then that was it. The buying started to come in. And the buying continues to come in because many believe there's a lot. A lot of shorts in the treasury complex, especially in some of the long-dated maturities. And as you look at twos to tens, that yield curve spread is approaching minus 100. It's around minus 97 now. And you can see that it is definitely the most inverted since March. However, it is very near if it gets through that March level. Once again, testing levels that we haven't seen since 1981.

And finally, we've all talked about China and how it's a big issue with regard to the global economy and how it's not coming back the way many had thought. Well, whether you look at the onshore or offshore you want, the dollar is at the highest level of the year against both. Kelly, back to you. Wow, that's something to watch as we talk about China's weakness. Thank you, Rick. And add energy prices to the list of things falling today. Oil, net gas, even solar stocks, Pippa. Yeah, a lot of moves here today. So starting here with oil and falling up on what Rick was just saying, China did cut another two lending rates overnight. But not as much as people were forecasting, so I'm not really doing a lot to support oil prices there. And now we have seen

very strong import data out of the region, but as Matt Smith over Kepler reminded me, it's very important to look at where that oil's actually going. And so he said that China's taking advantage of lower global oil prices and then importing a lot and then putting that oil actually into storage. So it's not as if there's any type of, you know, robust demand growth going on over there. Turning over to Nat Gas down about 4 percent today after that 17 percent jump last week that was in part thanks to short covering ahead of warmer temperatures. And actually down in Texas, Urquat, which is the grid operator, just about two hours ago, called for a voluntary cut for users today between 4 and 8 p.m. as they expect a record demand load as temperatures

top 100 degrees. So a lot to watch down in Texas. And then finally, solar shocks, solar edge and end phase both sharply lower. And that is after an industry conference in Munich, where there was chatter on the ground about weakness in the residential market over in Europe, as well as an oversupplied inverter market as Chinese manufacturers ramp up. And so both solar edge and Fays have looked to Europe to kind of meet some of their demand growth that they're not seeing in the United States. So the fact that now there's concerns over Europe as well, of course, their power prices have come down a lot. That's leading to a sell-off in those stocks. Less demand for solar when your regular, you know, power source. And it always seems to come back to China. So they're now, you know, back up,

cranking out those inverters. Do we think this is just a short-term thing or a longer-term thing? So they make more rudimentary string inverters, and so they haven't really gone to the, to the power-level modular ones that Solar Edge makes or the microinverters that N-phase makes, but they are now starting to adopt that technology. There are some concerns around security, as well as whether or not they are made as to a certain quality that the Western companies make them to. So we'll see, but for right now, the read on the ground is that both installers and distributors have a backlog of inventory more so than they usually have at this time of year.

Wow. All right, Pippa, thank you. Pip Stevens. Let's get to Christina Ports and Avelas for the CNBC News Update. Christina. Thank you, Tyler. Let's talk about Ocean Gate, the company that owns the submersible that went missing Sunday during a mission to explore the Titanic wreck, saying its CEO is also among the five-person

crew. A British billionaire, a Pakistani businessman, and his son, as well as a Titanic expert, are also confirmed on that vessel. The Coast Guard said this afternoon there's likely a few. only about 41 hours of oxygen left in the Titan sub. France sent a ship to aid in the search at the request of American authorities. Actor Jonathan Majors will go to trial for his domestic violence case on August 3rd. His accuser says he sent her to the hospital for minor head and as well as neck injuries back in March after a confrontation in New York City.

The Creed 3 and Ant Man as well as the Wasp actor is charged with misdemeanors and could be sentenced to up to a year in jail if convicted. Fox's News, Brett Baer and Martha McCallin are set to moderate their first Republican primary debate on August 23rd, which will air on Fox News. The Republican National Committee announced earlier this month that candidates who participate in the debate will have to pledge to support the eventual Republican nominee. Kelly, back to you. Should be one to watch, Christina, thanks. Ahead on Power Lunge, shrink leading to growth. A holiday warning signed 200 days early and a no-refund resurgence. We'll hit all these topics in a special research.

Until rundown next. Welcome back to Power Lunch, everybody. There are three key headlines in the retail industry that caught our attention. First, UBS out with a new note on how shrinking or the unexplained loss of inventory will turn from a headwind to a tailwind later this year and into next. Reports suggest holiday clothing sales could be weaker than expected. As some factory owners say, they're seeing big drops in retailers' holiday orders. And lastly, is the era of unlimited returns online coming to an end.

Non-refundable items are now popping up in even more places. Here to make sense of it all, Brian Gildenberg, managing director of retail cities, and Sandra Campos, founder of Fashion Launchpad and a CNBC contributor. Welcome to both of you. Let me begin with you, Sandra, and ask you, what about this matter of shrinkage, i.e., the thought that companies are losing. a lot of money to shoplifting, but it's somehow going to turn around? Well, they have been losing a lot, and we know that a lot of that has come from organized crime,

but for the most part, there was an imbalance an increase of sales versus the number of employees that were actually hired in stores. So it was an increase of, you know, 42% in sales, 19% of employees. So there's just an imbalance there that you're not going to be able to keep organized crime at bay for that. There was also more inventory that was moving through the retail system due to increased demand during the pandemic and through more increase in online sales. And then the last thing is really bookkeeping mistakes that were happening because retailers very quickly turned on buy online pickup and store and other technologies that were helping them create less friction with the consumer, but it was actually new for them. So because of that,

in this year, retailers are focused on profitability and focused on these operational efficiencies so they can actually have better profits and better performance overall. So I do think that that's going to be impacted in a better way in a more positive way this year. Brian, what's your reaction to this new note from UBS where they think shrink has gotten so bad that maybe it can be good again? They say that improvement will be an investable theme in the back half of this year and into 2024. Are we really turning a corner and tackling this problem?

I'm never a huge fan of the idea that things have gotten so bad that they can't get worse. So as an investment thesis maybe. But I think, look, I think there's a couple of really important things to keep in mind. Number one, labor, to Sanders' point, is really the issue here from an operations point of view. And until the retailers can hire more people, that's going to be the challenge. I think the UBS report pointed out that they're spending more on labor, but that's mostly on wages. You know, more expensive people don't prevent shrink. More people prevent shrink.

And I think that's a big issue. I think the other piece, which I do think is interesting, are the efforts that the sellers of merchandise that's being taken by organized crime are making to prevent and curtail that. You know, they mentioned the Inform Act, which is requiring marketplaces to get better traceability on third-party sellers. And I think Amazon in particular is doing a lot of work on this front to try and limit the ability of stolen merchandise to be resold in their ecosystem. So I think that's an important step. But I'm with a client today that's in a fairly high-shank category in the stores. And I think that they found the idea that I was going to be on talking about how shrink was getting better to be not quite accurate, given their experience. You want to elaborate it all on that? I mean, you know, it's highly debated in New York as well,

where there are efforts by the, you know, retailers want more technology and more systems to try to, you know, help this problem. And they say, now they say they're not getting the help that they need. Yeah, I think it's still a struggle. Right now, I think it's particularly acute. I also think, too, that the retailers are going to invest in solutions to try to prevent shrink. But those solutions often have a deleterious effect on sales. And if you've been to a store in New York, you know what that means. If everything's under lockup, it's hard to sell things. So I think there's, I think there's a real factor here that this problem's probably going to stay bad.

For a while, I might humbly suggest that this report might have been a tiny bit premature. All right, Sandra, let's move on to topic number two, and that is the holiday clothing sales outlook. What are you seeing? What are you expecting? Is there a killer item this year or just not? Well, I don't think we can expect to have a killer item. Clothing is definitely down for basis points from last year. It is when you have more than 60% of U.S. households that make less than $100,000 a year,

discretionary income is just not where it was, and it's certainly not clothing as a number one choice. More trends are for wellness and beauty products and services. So that's really where a lot of the disposable income is actually going. So impact on clothing has been there. is real. It's also been changing every year. The other part that's impacting it is consumer behaviors have changed. And that is that they are now spending more on resale. A lot of consumers made profits in the last few years in terms of just reselling their own products on the

Real Real, on Poshmark and other sites. And many brands now have added their own secondary retail and secondary channels to be able to sell their free worn products. So that actually, if you look at the Real Real, that their revenues increase. since 2020 by it more than 102%. So that's an entirely different channel that we didn't used to have before. That's so interesting you mentioned that. My wife does a lot of that of resailing items on, I think it's Poshmark. I don't mean to plug Poshmark, but it's just it is a different channel. Brian, do you see that as a as an influencer here? Yeah, and I do think Poshmark, to your point, I think also does an extremely good job of engaging shoppers in that

space. I think a lot of that are people buying new apparel and then reselling it later as well. I think the other interesting piece of apparel, though, that is critical, is that you've got everybody cycling last year, which was sort of the back-to-normal year. So when you're comparing results in apparel this year to last, that's always going to be a little challenging. I do think retailers felt that they got stuck with excess inventory last year. And it appears as though they're making the calculation to say, you know what, I don't, I'll leave some sales on the table to avoid being overexposed from an inventory point of view. And I think that's some of the news that was coming out about factories saying much shorter orders from retailers, how to get into the holiday season, that makes seem to pass. It always feeds the debate about whether there is going to be a new normal kind of post-pandemic in that sense.

I want to ask you both what's going on with returns. I'll start with you, Sandra, you know, if it's true that Amazon is cracking down a little bit and maybe others, as well. There's huge ramifications for just how much consumers are willing to stick with these platforms, isn't there? Yes and no. I mean, on the one hand, consumers returned $816 billion in 2022, and that was up 7% from the year before. So they become accustomed to returning online. If you look on the average women, buy three dresses and keep one, that's not sustainable for any business in any sector. So unlimited returns embarking on that. The number one focus is we have to remember is retailers need and want profit. So that's the focus today.

So I think it's important to reduce the friction with consumers. The retailers are really focusing on operational profitability and returns as they've become higher and higher as online sales have gotten greater. It's just not going to help their profitability. So I think that, you know, all in all, the consumers are going to have to get used to certain discounts being eliminated, certain returns being eliminated, and just technology tools that are now helping retailers to actually think through and forecast more efficiently for the future in terms of product needs.

And steering people to, you know, less returnable categories and things like that. We have to go. Brian Gildenberg, Sandra Compost, thank you. But again, that could be a really big shift ahead of the holidays this year. Coming up, the element of surprise. Disney execs blindsided by negative reviews for their new animated feature elementals. Even after getting what they thought was a positive reception, it can. Disney stocked down 1% today.

And as we had to break June's Pride Month, and CNBC is celebrating all month long, sharing stories of corporate leaders. Here is Amy Arrett-Madison, Reid, CEO and founder. Diversity is the key to having a culture that is robust and allows people to access their genius. When you can't bring your whole self to work, you're not your bold self. And people integrated between their personal life and their work life

is something that I believe a new generation of people in the workforce, not just demand, but don't want to be in a company where that's not true. At Madison Reed, we are a diverse organization. We have a say, the things that make us different make us. Welcome back. It seems Disney's magic is not inexhaustible. The company's newest animated film, Elemental, facing one of the worst three-day opening weekends in its history.

Even though last month, the movie received a five-minute standing ovation at Cannes. But apparently, that's short by Can't Clapping Standards. Julia Borson joins us live from Cannes, this time at the advertising conference to talk more about this debacle. Julia, was this a movie meant more for adults than kids fundamentally? No, this is a family film. Pixar films, though, have that typical appeal where they get kids and then the whole family goes. So that's why it was a disappointing weekend at the box office. Now, this is elemental from Disney's Pixar.

It did fall short of already lowered expectations. The film grossed just $29.5 million, which is the lowest opening for a Pixar film when adjusted for an inflation. And it did cost it reported $200 million to make and about another $100 million to market. Now this disappointing opening, despite the movie getting a 75% positive critics score and a 92% positive audience score on Rotten Tomatoes.

And critics are flagging that this is Pixar's third disappointment in a row. Now, it's not just Pixar under pressure. Another massive brand, Warner Brothers DC Comics, suffered the flop of the flag. The movie, which also costs reported roughly $300 million between production and marketing costs grossed some $55 million in its opening weekend debut. Despite DC Comics DC Studios, co-chief James Gunn saying that it is one of the greatest superhero movies ever made. Now, though there are a number of big name franchise films coming up this summer, including Indiana Jones and Mission Impossible sequels,

Weakness in familiar brands could mean that the box office will not return to pre-pandemic levels this summer, which is something that industry watchers, analysts, and of course the theater chains we're hoping for. One of the greatest superhero movies ever made, proving Julia, that the hyperbole does live still in Hollywood, thank goodness. While we have you, let's talk a little bit about social media. It is both a hot sector of the market, but also a target as more and more people worry about the impact that could have. on teens. We talked about TikTok earlier today. In China, they limit the number of hours that kids can be on social media per day. The CEO of Pinterest, you talk to that person about ways to make the internet safer. What did he say? Well, that's right, Tyler. Pindress CEO, Bill Reddy is here in Cannes. He's actually here for the first time, having become CEO of Pinterest just under a year ago.

Right now, I'm on what they call Pinterest Pier. They are showcasing creative activity that happens on Pinterest, they're also promoting how this platform is different from its rivals because it is promoting positivity. They're showcasing their new inspired internet pledge, which is designed to make the internet a safer place for teens by minimizing negativity. Take a listen. We really think that advertisers are looking for more places where they can engage with users in a place that is positive and not having these negative impacts on emotional well-being. So we think there's actually advertiser demand for this. Another key differentiator for Reddy and Pinterest as he fights for ad dollars with fast-growing rivals such as TikTok is Pinterest partnership with Amazon, bringing third-party ads to the platform and also Pinterest focus on shopping. More than half the users on Pinterest are there to shop. It is what the user came there to do.

So the user's in a lean forward mode looking to shop. People come to Pinterest to plan, to dream, to do, to make, to buy. is endemic to our platform. And so we're bringing more tools to help advertisers connect with what the users already trying to do versus across the most much of the rest of social media. Pindred shares are up nearly 40% over the past 12 months, but up just 4% year to date, having fallen dramatically after reporting earnings and a disappointing outlook. So the pressure is on for the company and Bill ready to close and more deals here in

can. And many of them perhaps will be deals that close on this beautiful beach. Kelly. I've been waiting five years for Pinterest to get more buyer-friendly because my biggest frustration is when I see something I like there and then I can't find it. Maybe AI can help with that. Who knows in the future? Julia, thanks. Enjoy it. Julia Borsden. Coming up, Eli Lilly, acquiring Dice Therapeutics for almost $2.5 billion to bulk up its treatment for immune-related diseases. Lilly shares, which are already having a huge year, up another 1%. Dice up 37%. We'll trade the news in three-stock lunch next. Well, it is time for a Monday three-stock lunch. First up on today's menu is Eli Lilly announcing it's buying Dice therapeutics in a $2.4 billion all-cash deal. Dice specializes in oral therapeutic drugs for autoimmune diseases.

Here with our trades, Victoria Green, chief investment officer at G-squared private wealth and a CNBC contributor. Victoria, what do you think of Eli Lilly? It's a buy. They could do you know wrong right now. It's a great combination of great synergies, at least on paper. You've got the great R&D tech, the patents, and really the technology that Dice has been working on along with Lily size and scale. He has so much cash to burn right now because everybody's getting into the weight loss drugs, the diabetes drugs, and the weight loss drugs are expected to be a $100 billion market.

So right now, Lily can do no wrong. I see this as a great acquisition and synergies. There's about 100 different autoimmune disorders out there, so that marketplace has a lot of room for growth. Is Mungaro going to be one of the biggest drugs of all time? It could be. I mean, I'm just waiting until it's easier to get for swimsuit season, right? Yeah. I will tell you, I know a big-name investor, a billionaire,

let's say this morning who told me he couldn't get any because he took it up for a month. He said, I don't want to jump the line. I want to play by the rules. Anyway, lots of demand. What about Etsy? Totally different story, Victoria. But they do have about a billion dollar stock buyback plan they announced last Friday. Big surge during the pandemic.

What about now? You like the stock? No, just for me, it's still a sell right now. They really need to reorganize. All that hypergrowth we saw on e-commerce has slowed down tremendously. SD really needs to fix this platform a little bit. You guys were talking about Pinterest, needed to make it a little easier to find things and buy things. SD's platform and shipping options really do need to upgrade. They're struggling to add users. They have added a few sellers. The increase fee on sellers has gone down okay.

For me, this company is consolidating and reorganizing. They need to figure out how to grow again. And they're really struggling to get that growth, especially with all the competition. competition and e-commerce, Pinterest, Amazon, eBay, you know, everybody out there competing for the same eyeballs and the same sales. They're going to have to figure out how to get more profitability, not just eyeballs and name brand recognition, but more money. All right. Thank you very much. Our last pick is Philip Morris, or not pick, last stock is Philip Morris. City upgrading the tobacco company to buy from neutral, saying investors are undervaluing the growth of its smoke-free products. It says Philip Morris is well on track to meet its goal to have more than half of its net revenue from smokeless products, Victoria.

Absolutely. And to me, Philip Morris is a buy. It's confusing. This is maybe a New York-based stock, but it's an international stock. It's Philip Morris International. It gets about 40% of its revenues from Asia and Europe, or 40% from Europe, about 30% from Asia and Australia, 10% from the Middle East. Remember, American views and regulations on tobacco are not the same way the rest of the world. world views tobacco. And they are really truly a leader in smokeless tobacco. So while we're moving away from what they call the combustible market, they are still leading in the smokeless area, whether that's the vaping or if it's in snuff. And you have to look at this and say, look, it's a 16-time valued staple with 5.3% dividend. And they generated $32 billion in revenues last year. It's a huge company and tobacco still sells globally. All right. Victoria Green. Thank you, as always. Good to see you. Thanks, guys. You bet. And lots more. stories we want to talk about. Closing time is next. Welcome back. Let's make this quick.

Two and a half minutes left in the show and a lot of stories you need to know about. Starting with India's Prime Minister, Narendra Modi, a busy itinerary for his U.S. trip, meeting with President Biden Thursday. And this afternoon sitting down with none other than Elon Musk in New York as Tesla looks for a location to build a factory there. It's going to be an interesting week. We're just mentioning that President Biden does not do many state dinners and Modi is getting one. I think, I guess it must be Thursday night when they need. I'm sure he likes to play up the contrast with China right now. Yes, absolutely. The administration. Particularly after the meeting with Blinken and G. yesterday. Bud Light's chief marketing officer

calling the controversy surrounding its partnership with a transgender influencer as a, quote, wake-up call, I should say so, speaking at the Cannes Festival. He said marketers need to remain humble and listen to their customers, but he expressed optimism about the brand, saying it's coming back. I think Bud Light lost its spot as the number one beer in the country to Modello, if I'm remembering correctly. And this controversy obviously was a big part of it. Yeah, and he says a turnaround, but their sales are not showing it yet. Check out the infrastructure ETF pave up 10% so far this month. And this as that part of I-95 that got destroyed in that fire a couple of weeks ago, could reopen within a couple of weeks, according to officials?

as many people wondering how this project got done so quickly, wow, what we could be capable of, Ty. If they could just do sort of Broad Street here in Englewood Cliffs, just new asphalt, it would be just fine, cross Bronx, good, let's get on it, it's a good thing. Or to add climate change to the list of things people consider when deciding whether or not to have children. This according to a survey done on behalf of HP, 53% of parents say it would affect their decision to have more kids.

Climate change, obviously. Rising temperatures, water shortages are the highest concerns here. It is a new generation. They really pay attention to these kinds of things. Look, it's efficient to have a lot of people in one household. You can speak to that. You can speak to that. And Silicon Valley has a new unicorn, but it's not a tech or AI company.

It's an old economy mining company. Cobalt metals raising $200 million, valued over a billion. Bill Gates venture fund among their investors, they explore for metals like copper and lithium. Lithium, lithium. Thanks for watching, Power Line.